Does Your Franchisor Make These 2 Critical Mistakes with the Franchise Owners?

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Last week, I described a new approach to dispute resolution within a franchise system.

Are there some situations in which this new approach simply will not work? Of course. Nothing works in every situation. Here are two examples.

1. Think of an over the hill or "very" mature franchise company with franchisees departing or about to depart who do not intend to comply with the post term covenants not to compete in their franchise agreements. The typical company position is that any departing franchisee that seeks to avoid the covenant not to compete must be financially destroyed or every franchisee in the system will leave.

The view is that this is do or die with no middle ground. I have seen this dozens of times and made a lot of money over the years trying these cases.

As the outside trial lawyer I know that I have been called in later rather than earlier and that all heels are by now fully dug in.

If I were even to suggest compromise at this moment I would be removed and a more tractable trial counsel retained.

If I win the lesson is taught and the non compliant departing franchisee has been made to pay a price that will deter all the others.

But, I have made non compliance vastly more costly than compliance. The other franchisees become less inclined to make a fight over this and everyone goes back to loathing each other in a business relationship that one side is milking into its eventual grave and the other side is too disorganized to be creative about a business positive solution.

The lawyers made out like bandits. The parties are still as miserable as before the whole process began.

2. Think of a business organization leader who is simply so egotistical and insecure that he could never be introduced to any compromise.

With him everything is always and immediately "The principle of the thing". He refuses or cannot see that it is almost never a matter of a single principle. It is always a matter of several principles in competition for attention and waiting for some rational person to sort them out according to their value priorities.

When ego forecloses rational business valuations, everyone loses.

If this boss owns the company, well then it is his money and he can very well do as he chooses with it.

Often, however, he has other investors and it is also their value that is wasted even more than his (if they tolerate the ego aggrandizement).

These are the two most often encountered situations in which there is usually no opportunity to achieve a rational economic disposition of a coming conflict.  (Actually even in these two there are other rational approaches, but few listen.)

When you need competent advice on how to change your franchise business model, connect with me on LinkedIn and let's chat.

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About this Entry

This page contains a single entry by Richard Solomon published on October 22, 2013 10:10 AM.

Lessons about Franchisor Liability Cases - Franchise Relationships (Part 1) was the previous entry in this blog.

When Should a Franchisor Deal with an Independent Franchise Owner's Group? is the next entry in this blog.

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